IBM Unlikely to Resolve the Capex Conundrum

Earnings season has mainly served up contradictory clues to the economy's second-half outlook, giving investors all the more reason to home in on Thursday's postclose results from IBM ( IBM).

So far, General Electric ( GE), Novellus ( NVLS) and even Intel ( NVLS) have reported seeing steady demand. But Yahoo!'s ( YHOO) disappointing guidance and a slew of earnings warnings from Veritas ( VRTS), PeopleSoft ( PSFT) and others have sent tech shareholders jogging for the exits.

At Big Blue, management has talked up prospects for increased corporate spending for the past two quarters. In April, then-chief financial officer John Joyce (since named to head up the company's services arm) said customer infrastructure was the oldest it's been in nearly two decades, hinting buying would soon accelerate.

But IBM has yet to show proof the widely anticipated corporate spending pickup has arrived, and the early chatter suggests the company won't be any more persuasive Thursday.

While Wall Street was betting earlier this year that strengthening global business profits would end up translating to IBM's bottom line, analysts have lately cooled on that theme. At this point, few expect much in the way of positive surprises. Still, IBM should at least meet the consensus estimate for $1.12 in earnings per share on revenue of $23.35 billion; that sales level implies growth of 8% vs. last year's $21.6 billion, or around 4% adjusted for currency fluctuations.

Even the Bulls Are Cautious

It's a measure of Wall Street's humdrum expectations that Morgan Stanley analyst Rebecca Runkle, who on Tuesday upgraded IBM from equal weight to overweight, also said consensus numbers on the stock may be revised down after the June quarter report. "The current quarter is not central to our upgrade," Runkle wrote.

IBM may not be able to meet its long-term guidance for high single-digit revenue growth and low double-digit EPS growth, Runkle said, citing the potential for "a meaningful slowdown in IT spending over the next several quarters."